Daily Newsletter, Saturday, 11/11/2006

Table of Contents

Market Wrap

A Quiet Veteran's Day

by OI Staff

I (Keene Little)
will be filling in for Jim for this weekend's report. Today
seemed more like an opex Friday rather than the day before opex week starts.
Lately we've seen the Thursday and Friday before opex get a little volatile as
traders square up a lot of their positions (exiting or rolling out) before
options expiration. Other than a bit of selling Thursday afternoon we haven't
seen much volatility. Friday was a downright snoozer. Of course Veteran's Day
had many traders taking the day off in
order to give themselves a nice 3-day
weekend. Thursday's selling might have been a result of the holiday
weekend--take some profits off the table before leaving for a long weekend
rather than leave it at risk. After all, the bulls have some pretty good profits
sitting on the table right now and I would imagine some are getting a little
nervous and moving more into profit protection mode now.

There was no major economic news on Friday and the day started out with a slight
dip but then consolidated for most of the day. A further dip in the afternoon
was followed by a lift into the close which gave the major indices a marginally
positive close. The techs and small caps were the strongest of the bunch which
could be considered bullish. The VIX dropped sharply into the end of the day
which is also potentially bullish. Finishing at 10.79 the VIX is showing no
worries about the lofty levels in the market.

VIX chart, Daily

The VIX has been chopping its way lower since its spike up in June, which of
course was a low for stocks. There are a couple of ways to draw the top trend
line of its wedge but it appears to have broken out of it as of last week and
has since been spending its time consolidating and pulling back to retest the
broken downtrend line. If the stock market rallies further
in the coming week
we'll probably see VIX slide down this trend line and could find support at its
previous 2005 lows near 10.

One of the explanations for the lack of fear this week is the expectation that
the market will rally next week out of relief that the elections are over and
the uncertainty has been removed. If that were a good reason I wonder why it
didn't rally at the end of this week. At the end of this report I show which
economic reports we'll get next week
and again it seems there's an expectation
that we'll see good numbers for the economy. As earnings wind down there's also
less fear that we'll get a nasty surprise in that department.

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Dell
and Hewlett-Packard will report next week and there's hope they'll continue
the string of strong earnings reports from technology companies. The tech
earnings helped drive the Nasdaq up this week, giving it its best week in two
months. Certainly if there was a lot of concern about the market we would not
see the techs and small caps leading the way. These stocks are a measure of the
market's appetite for risk and clearly the market's appetite has not been
satiated yet.
But why are the semis so notably MIA? That sector continues to be
a warning flag but as has been the case for two months now that warning flag has
been trampled by the bulls.

There is also an expectation that the stock market will rally into the end of
the year since that's what it typically does after mid-term elections. The
challenge for this scenario is that 2006 has been the year of moves counter to
normal expectations. It has rallied during times when we should have
expected
declines and vice versa. In keeping with the counter moves we should see a
decline into year end. That remains to be seen obviously.

And of course we're heading into opex week and anything can happen by that
influence alone. Other than this past May we have usually seen a bullish opex
week. Many times it starts down, usually the Thursday before, and then gets a
strong reversal the following week. This Thursday was down so that could be
setting up our bullish week.
I've reported on the trading activity of the
mega-banks' trading teams and the way I think they make a lot of their money
(with the help of hedge funds jumping on the band wagon). It's relatively easy
for them to manipulate the market during opex. If they can drive the market
down, buy some cheap front-month call options and sell deep ITM put options, and
then drive the market higher into opex they can make a boatload of money.
They've consistently shown each quarter the results
of their "risk-free"
trading.

The only fly in the ointment for this scenario is what I see in the charts which
indicate to me that we might have topped. That's a tough call right now since
the up trends are still well intact. The opexantics can also result in moves
that are counter to what the charts are telling us. But there are enough signals
that indicate to me that we could be very close to a trend change, which I'll
review with the charts below.

Next
Tuesday we'll get retail sales data. It was down -0.4% in September and
expectations are for a slight improvement to -0.2% in October. If that number
comes in much worse, signaling a stronger slowdown in consumer spending then the
market is not going to be happy. Spending is expected to be strong during the
upcoming holiday season and if that doesn't happen then the market's
anticipation for a strong end-of-year run will evaporate instantly. Wal-Mart has
already been warning
of lower expectations and I think that's the warning shot
across the bow. If the other retailers follow suit then batten down the hatches.

Naturally there's lots of speculation going on now that we know we have a
Congress and Senate dominated by the Democratic party. We could get the gridlock
that the market favors but with both the Congress and Senate under the Democrats
there may be more influence by the Democrats than the market had been expecting.
That has started up
the worries about higher inflation due to higher taxes and
wages (raising the minimum wage would be inflationary). That puts us back on Fed
watch since they've made it very clear that higher wage growth (which we've seen
lately) will put them back on the rate-increase path.

Bonds have been all over the map recently which says they don't have a clue
either (they're supposed to be the brighter bunch). Yields have been spiking
strongly up and down since September and my first
impression is that it might be
in a consolidation pattern before continuing lower.

30-year Yield chart, Daily

The other interpretation is that bond yields are hammering out a bottom and will
start to rally after possibly chopping a little lower. It's too early to tell.
As can be seen by the RSI we're beginning to get some bullish divergences
at the
test of September's low. If we see the yield continue to consolidate in a
descending triangle pattern then it will look like a continuation pattern (for
lower yields). Lower yields would likely mean we're heading into (or already in)
a recession.

China was back in the news this week. Our trade deficit with them continues to
worsen, hitting a record high of -$23.0B in October. We, and many other
countries, have handed off much of our manufacturing to them and
now buy our
products from them vs. producing it ourselves. It of course means lots of US
dollars leaving the country which has been coming back to us in the form of
treasury purchases. They continue to indicate their desire to diversify into
other securities rather than the US dollar and that helped depress the value of
the dollar to nearly a 3-month low. China reiterated its desire to invest more
in gold and that helped boost the price of gold to near September's high.

But
China's news is nothing new and the price patterns of the dollar and gold
look ready to reverse again as they continue to consolidate.

Gold chart, December contract, Daily

Gold has rallied up to its broken uptrend line from August 2005. With the daily
chart in overbought it seems unlikely that the rally will continue. From a short
term
perspective I see the possibility for gold to rally to the 643 area but
that's just an upside potential that I see for gold. Short term bearish
divergence at the last high (you can see it on the RSI on this chart) raises the
possibility that we'll see a pullback start from here.

U.S. Dollar chart, Daily

The US dollar is dropping to its uptrend
line from January 2005 and with the
daily chart looking oversold we should see the dollar start to bounce back up.
The longer term pattern suggests we should see the dollar bounce back up to the
top of its consolidation pattern, near 85.30, and at the same time would hit its
downtrend line from November 2005. That should set up a decline to new lows as
we head into 2007.

A declining dollar fits the scenario when two things are considered: One, like
China, many other
countries have also stated they wish to diversify and invest
in other securities as they feel they are too heavily invested in the US dollar.
Lack of demand for, if not outright selling of, the greenback will of course
depress its value. Two, the Fed has been producing money at hyper-inflated rates
which will of course devalue the dollar itself. Think of those countries that
were experiencing strong devaluations in their currency. They were at the same
time experiencing rampant inflation.
I'm not saying that's where we're headed
but that's the risk.

That brings up the subject of money supply.

Calculated M3 Money Supply, Daily chart, courtesy nowandfutures.com

The first thing you should notice when looking at this chart is the parabolic
rate at which the money supply is growing. Bernanke stated this week
that
they're not concerned about money growth anymore since they don't see the
correlation between it and economic growth. He said this was due to the
innovative financial products that have been introduced in the past few years. I
guess that remains to be seen. I have trouble with that opinion when I see the
value of the US dollar dropping over the past few years while the rate of growth
in the dollar continues to grow at an expanding rate.

If the Fed is intent on monetizing
the debt (to be able to buy it back with
cheaper dollars) then that would be a reason they wanted to stop reporting M3
money supplies and try to convince us that they are not concerned about money
growth. And if the stock market is the beneficiary of all that money, well then,
all the better. As I had commented previously, the spike in money growth, as
indicated in the big jump in the rate of growth (light blue line) since August
seems suspiciously connected to the huge run
up in the stock market. When (if)
the rate of growth in the money supply slows down, as has started in the past
two weeks, then the stock market may lose its prop.

Thanks to Monday and Tuesday the stock market had a good week. As can be seen in
the table at the beginning of this report, most indices and sectors were up
nicely for the week. As can be seen, this week reversed the losses we saw last
week. Let's review the charts.

DOW chart, Daily

The DOW continues to hold inside its bullish up-channel for price action since
July. I added small horizontal lines that indicate the stair-stepping higher
that this market has seen. It all looks very programmed. Each step is roughly
130 points and the step above the current high is near 12250 so that's our
upside potential if we get an early rally next week.

But
I see some bearish things developing here. One, RSI has broken its string of
higher lows since June. Two, RSI came up for a bearish kiss goodbye against its
uptrend line this week. Three, price stalled at the mid line of its up-channel,
often an indication the rally is losing steam. Four, we have a large bearish
divergence against the high on October 26th. These are all warning flags so the
question for the upcoming week is whether the bulls, especially with opexantics,
simply
trample those flags again.

Bullishly I see the following on the above chart: one, it's still within its
up-channel; two, the DOW held its 10-dma on Friday (12095) after bouncing off
its 20-dma (12071); three, RSI has held above the 50 line (thin red horizontal
line) on its pullback; four, see #1. By the way, if the DOW breaks below RSI 50
it will probably be breaking its uptrend line at the same time and will be
confirmation it's likely real selling (not a head fake)
taking hold.

DOW chart, Weekly

The DOW's weekly chart shows that it is overbought on this time frame and
threatening to turn back down. It's also overbought when you look at its bullish
percent--it's now reaching the level it was at in early 2004, which marked the
high for the DOW at the time. I also show the measured move from October
2005--we have two equal legs up from that low to the projection at 12197. The
high this past week was 12196. These measured moves are very common reversal
levels so this is another warning flag. If I've got the long term wave count
correct, this leg up is the one that will finish the 2002-2006 rally.

SPX chart, Daily

SPX also looks bullish
here when I look at that strong jump off its uptrend line
from July. As long as this stays inside its steep up-channel then long is the
place to be. Just be ready for a quick exit when that uptrend line breaks
because everyone and their brother is watching it. Also be careful about a head
fake break down. It's been very easy for the market manipulators to move the
market in one direction, let's say a break down in this case, suck in the bears
and stop out the longs, and then hit
it hard with some buy programs to get both
sides scrambling to buy it again. It's been almost too easy for them to do this
so expect it again. But a real break will likely open up the flood gates of
selling.

Like the DOW I see a couple of bearish developments here: one, the same mid line
of the up-channel is acting as resistance now; two, the uptrend line for MACD
(and RSI) has been broken; three, a retest of the October 26th high is leaving a
bearish divergence; four, price
has stalled at the 78.6% retracement of the
2000-2002 decline (the line in the sand for bears) and the Fib projection based
on the move up from August 2004, both in the 1386-1389 area and the high for SPX
is 1389.

Bullishly, also like the DOW, I see: one, it's still within its up-channel; two,
price bounced off it's 10-dma (1377) and 20-dma (1375); three, RSI bounced off
its 50 line and holds above it; four, see #1.

Nasdaq chart, Daily

Same exact comments for the DOW and SPX hold for the COMP. The only extra
bearish thing I see here is that the bearish divergences since early October are
more pronounced. Even though the techs have exhibited more relative strength
this week, from a price standpoint, they could be considered weaker when looking
at the lack of breadth exhibited by this chart. The bullish
thing I see is the
fact that price held the retest of the April high at 2375. As long as that
continues to hold then stay on the long side (not to mention its uptrend line
now near 2367.

The good thing here is that the market is in synch--all indices are in agreement
and that's refreshing. When one is breaking they will probably all be breaking
(or rallying).

Where In the World Is the SOX semiconductor index, Daily chart

Someone stopped me in the street wondering if I'd sign petition and wear a
bracelet with the name "SOX" on it. For those who grew up in the Vietnam era
you'll get the joke. The SOX continues to be MIA in the broader market rally.
The bearish divergence on MACD can be interpreted two different ways here. The
bullish interpretation is that MACD is "resetting" itself
back to the zero line
as price consolidates. This could be a very bullish interpretation. The bearish
interpretation is that the new highs, or retests of highs, is being accompanied
by lower highs in MACD. At this point I would say a failure to get back above
its 200-dma, which continues to act as resistance, is bearish. It takes a break
below the October low, so below 444, to confirm we're probably in a break down.

BIX banking index, Daily chart

While the banks didn't quite rally up to the top of its parallel up-channel it
did come within a half point of its Fib projection at 403.68 (Wednesday's high
was 403.20). The rally continues to leave bearish divergences, including at its
most recent high. The EW (Elliott Wave) counts looks complete for its rally from
June. If it manages to rally a little higher in the coming
week then the top of
the channel is near 405. A break below 392 would indicate a top is very likely
in, and it should be a long term top.

U.S. Home Construction Index chart, DJUSHB, Daily

The home builders got a bounce on Friday and it was just in time. That's a
bounce off support at the bottom of its bear flag pattern and its broken
downtrend
line. I have very mixed feelings about this chart. On the one hand it
looks potentially bullish for another run higher to the top of its flag pattern
where it would also meet resistance at its 200-dma. But in order for that to
happen I would think the broader market will have to be rallying strongly as
well and I'm having trouble seeing that possibility at the moment. So for the
time being let's see if the 50-dma holds price back. A small bounce here
followed by a break below
600 would indicate that the high for the bear flag was
the October high.

Oil chart, December contract, Daily

Oil looks bullish in that it broke above its downtrend line from August. But
it's floundering. I was expecting a firmer break to the upside. So far it's
looking a bit corrective with overlapping highs and lows. This signals to me
that
my interpretation of the wave pattern could be correct--it says we've seen
the long term highs for oil and price will continue lower after this bounce is
finished. I still believe we'll see a multi-month rally in oil but it could end
up being very choppy and difficult to trade.

Oil Index chart, Daily

The rally in the oil stocks was a
predictor that oil itself was finding a
bottom. I can't help but feel that has now been priced in and we're going to see
price stall for this index. As depicted on the chart I 'm expecting to see a
pullback. Whether that leads to another bounce higher or to new lows is too hard
to tell right now. If long the oil stocks continue to follow Jim's analysis in
his LEAPs updates. From a strictly technical analysis I would say you want to
protect positions here and perhaps selling some covered
calls is the right play.

Transportation Index chart, TRAN, Daily

If the Transports manage to rally to a new high I suspect it will be associated
with more bearish divergences. But it's close to breaking its uptrend line and
that's the way I'm currently leaning. A break below 4600 would be bearish.

Next week's economic reports
include the following:

As you can see, it will be a busy week next week for economic reports. There are
some big reports in there that the Fed watches carefully and depending on how
the market interprets how the Fed will interpret the data (confused?) will
determine the knee-jerk response. On top of that we've got the potential
amplification
of opex. Need I say be careful this coming week?

The plethora of warning signals I see in the charts now, on the daily and weekly
charts, tells me we could finally be putting in a high. Whether or not we get
the opex push to new highs I can't tell but if we start breaking the uptrend
lines from July/August then there will be little question in my mind that we've
put in a major high, at least one that should last for quite a while. More
bearishly, the highs, once put in,
will not be seen for many years to come as we
start bear market leg #2.

I could easily justify a move either way for the upcoming week. My feeling is
which ever direction it starts on Monday could easily be a strong move for the
week. I continue to believe the mega-banks' trading teams and hedge funds get
the momentum started during opex week and won't let up until Friday's close. At
least that's been the pattern. Therefore I'm almost inclined to suggest joining
an initial
move and stick with it rather than try to day trade it.

But countering the argument to stick with a swing trade for the week I've got
concerns that if we're in a topping pattern then we could see lots of volatility
with big spikes up and down. The number of important economic reports this week
could help amplify those spikes. The easy recommendation is to stay long above
the uptrend lines shown on the charts and get short below. Those uptrend lines
are close so it won't
take much of a move to show us whether or not they're
going to hold.

Good luck this coming week since it could be a tough one. Trade light and don't
let a move go much against you since the potential is that we will not see much
in the way of corrections to the move (as has been typical pattern). I'll see
some of you on the Market Monitor for the intraday calls on Monday and everyone
else back here for a review of market action in Tuesday's Wrap.

New Plays

New Option Plays

by OI Staff

Call Options Plays

Put Options Plays

Strangle Options Plays

MS

None

None

TNB

WHR

New Calls

Morgan Stanley - MS - close: 76.68 chg: +1.83 stop: 74.49

Company Description:
Morgan Stanley is a leading global financial services firm providing a wide
range of investment banking, securities, investment management, wealth
management and credit services. The firm's employees serve clients worldwide
including corporations, governments,
institutions and individuals from more than
600 offices in 30 countries. (source: company press release or website)

Why We Like It:
Currently LEH is on the play list as a put candidate. We're going to hedge our
bets and add MS as a bullish call candidate. The run up in the broker-dealers
from their late summer lows was very impressive but late October and early
November saw several stocks in the group breakdown. MS was trending lower after
its peak in late October
until traders bought the dip at its 38.2% Fibonacci
retracement level (see chart). Friday's rally (+2.4%) is a bullish breakout over
the three-week trendline of lower highs. It also follows a higher low for the
stock. We're suggesting calls with MS above $76.00. Our short-term target is the
$79.90-80.00 range. More aggressive traders may want to aim higher since the P&F
chart points to an $83 target.

Suggested Options:
We are suggesting the December calls
since we plan to exit ahead of the December
earnings report.

Company Description:
Thomas & Betts Corporation (www.tnb.com) is a leading designer and manufacturer
of electrical components used in industrial, construction, and utility markets.
(source: company press release or website)

Why We Like It:
The consolidation in TNB appears to be ending. Technical indicators are turning
positive as TNB prepares to breakout
from a bull flag-shaped pattern. Friday's
intraday bounce from the $50 level and its 200-dma looks like a new entry point
to buy calls. We do see some resistance at the $54.00 level but we are aiming
for the $56.00-57.00 range. Currently the P&F chart points to a $77 target. More
conservative traders may want to wait for a move over $51.50 or $52.00 before
initiating positions.

Company Description:
Whirlpool Corporation is the world's leading manufacturer and marketer of major
home appliances, with annual sales of more than $19 billion, more than 80,000
employees, and more than 60 manufacturing and technology research centers around
the world. (source: company press release or website)

Why We Like It:
The sideways consolidation in WHR may be coming to an end. The stock has rallied
from its early November lows and is now
challenging resistance at the $90.00
level. Daily technical indicators have turned positive and the P&F chart points
to a $94 target. We want to catch a breakout over resistance at $90.00 so we're
suggesting a trigger to buy calls at $90.15. If triggered our target is the
$94.75-95.00 range.

New Puts

None today.

New Strangles

None today.

Play Updates

In Play Updates and Reviews

by OI Staff

Call Updates

CNOOC Ltd - CEO - close: 87.42 change: +0.80 stop: 82.89

This has been a volatile week for crude oil. On Thursday crude oil futures
surged more than 2% to breakout over $61 a
barrel. Today crude oil decline back
under $60 after the IEA cut their demand forecasts. Shares of CEO ignored the
weakness in crude oil on Friday. The stock gapped open higher and closed with a
0.9% gain. The move was probably fueled by news that the company reached success
with a new natural gas well in Bohai Bay, China. We are still bullish on the
stock but we're not suggesting new positions at this time. Our target is the
$89.50-90.00 range.

Suggested Options:
We
are not suggesting new positions in CEO at this time.

Tech stocks, for the most part,
were still inching higher on Friday.
Unfortunately, shares of CERN continue to under perform the last few days. The
overall pattern for CERN is still bullish given the breakout over resistance at
$48.00 but the most recent candlestick on the weekly chart looks like a
short-term bearish reversal (at the very least a failed rally). Friday's session
doesn't tell us much. CERN traded sideways in a narrow 40-cent range for most of
the day. A bounce from $49 near its 10-dma would be encouraging
but we'd
probably look for a dip and bounce near $48.00 before considering new positions.
More conservative traders may want to adjust their stops closer to the $48
level. Our target is the $52.00-52.50 range.

Suggested Options:
We are not suggesting new positions at this time. Keep an eye on the $48 level.

Friday's trading in DE didn't help much. The stock produced a minor bounce on
below average volume. Overall Wednesday's breakout still looks like a bullish
entry point to buy calls. However, traders may want to be patient and try and
buy a dip in
the $86.50-86.00 region. We suspect that DE will rally into its
November 21st earnings report. There is probably some resistance at its October
high (90.47) but shares have more significant resistance near $92.00-92.50 from
last May. We'll use a $91.50-92.00 target. We do not want to hold over the
November earnings report.

This looks like a new bullish entry point on FMX.
Traders bought the dip (twice)
near $100.00 on Friday morning. The rebound put FMX back near its recent highs
and shares look poised to hit new highs next week. The P&F chart looks very
positive with a bullish triangle breakout pattern with a $121 target. Our stop
loss is at $97.99 but more conservative traders might want to tighten theirs.
Our target is the $107.00-110.00 range.

Oil
service stocks tend to be more volatile than their oil producing peers. That
was definitely the case on Friday. The IEA lowered their forecast on oil
consumption and crude oil futures dropped back under $60 a barrel in what has
been a volatile week for the commodity. Oil stocks fell lower but oil services
under performed with a 1.8% decline in the OSX index. Shares of GSF closed with
a 0.9% loss. We were looking for a bounce near the $54.00 level. GSF actually
found
short-term support near $53.50. The late afternoon bounce in GSF looks
like a potential entry point to buy calls again. However, we are concerned that
the three-day pattern in GSF and the OSX oil services index looks like a bearish
reversal. Therefore we're not suggesting new bullish positions in GSF at this
time. More conservative traders may want to tighten their stops. Our target is
the $57.50-58.00 range.

Suggested Options:
We're not suggesting new plays in GSF
at this time.

The decline in oil futures also impacted shares of HOC. The stock lost just over
2%
on Friday to reverse Thursday's gain. The technicals are starting to look
mixed with the MACD on the daily chart poised to move lower versus the MACD on
the weekly chart poised to produce a new buy signal. We would not suggest new
bullish positions with HOC under $50.00 but aggressive traders might want to try
and buy a bounce from $48 or $49 should one appear. Our target is the
$54.90-55.00 range.

Suggested Options:
We're not suggesting new plays in HOC at this time.

PBR managed to post a minor gain in spite of the decline in the oil sector
indices and crude
oil futures. We remain optimistic but if you're looking for a
new entry point then consider waiting for a dip back towards the $90 level. The
technicals on the weekly chart are bullish while technicals on the daily chart
are starting to near overbought zones. The P&F chart is bullish with a $104
target. Please note that we're raising the stop loss to $87.99. Our target is
the $95.00-96.00 range. FYI: PBR is a Brazilian stock traded as an ADR here in
the U.S. One risk traders
are facing is the company's earnings report. We cannot
find a specific date or even a history of recent earnings reports. The risk is
that they announce a negative report while we're trading them.

Suggested Options:
If PBR offers a new entry point near $90 we'd consider the December or January
calls.

Traders bought the dip in RAIL near $54.00 and its 10-dma and 50-dma. This looks
like a new entry point to buy calls, especially given Friday's rebound in the
transportation index. RAIL's P&F chart is bullish and points to a $68 target.
Our target is the
$59.75-60.00 range.

News that the IEA had reduced their forecast for oil consumption sent crude oil
futures lower and that weighed on the oil service stocks. The OSX index lost
1.8% and shares of RIG fell 1.17% - back under its 200-dma. Overall the larger
pattern for RIG looks bullish but we noticed that the newest candlestick on the
weekly chart looks like a bearish
reversal or failed rally. We would look for a
new rebound over $76.00 or a new dip/bounce near $74.00 as a new entry point to
buy calls. Before considering new plays readers should note that the daily chart
for the OSX oil services index looks dangerous with the last three days
producing what could be a bearish reversal pattern. Currently we have two
targets for RIG. Our conservative target is the $79.50 level. Our aggressive
target is the $84.00 level.

Suggested Options:
If
RIG produces a new entry point we'd suggest the December or January calls.

Shares of SLB, another
oil services stock, really under performed on Friday with
a 2.5% decline. The overall pattern looks similar to RIG where the trend appears
to be up but the trading over the last week looks like a bearish reversal (see
weekly chart). If you're looking for a new entry point we would wait for a dip
and bounce near $62 and its 200-dma or for a new rise past the $65.00 level.
Bear in mind that our target is the $67.50-68.00 range. Currently the P&F chart
is bullish with a $75 target
but its upward momentum is in jeopardy. Readers
should note that the recent trading in the OSX oil services index might be a
short-term bearish reversal.

Suggested Options:
If SLB offers another entry point we'd consider the December or January calls.

We remain cautiously optimistic on VIP. The stock acts like it wants to move
higher and given the chance we think it will. Unfortunately, VIP is also
overbought and could be a big target for profit taking should the major averages
turn lower. Shares of VIP are relatively close to our target in the $67.50-70.00
range
so we're not suggesting new plays. We are going to repeat our earlier
suggestion that more conservative traders may want to take some money off the
table now. Don't forget that we're dealing with a rising environment of risk due
to the earnings report. The company is expected to report this month but we
can't find a specific date. Estimates for when VIP will announce range from
November 7th to November 23rd.

Suggested Options:
We are not suggesting new call positions
in VIP at this time.

Put Updates

Advanced Micro Dev. - AMD - cls: 21.07 chg: +0.18 stop: 22.05

The SOX semiconductor index appears to
have produced the right shoulder in a
bearish head-and-shoulders pattern. The defining moment looks like Thursday's
failed rally under the SOX's 200-dma. Unfortunately, there was no follow through
lower on Friday. Instead the SOX bounced with a 1% gain lending strength to the
NASDAQ. Shares of AMD followed with a 0.8% bounce albeit on relatively low
volume. We suspect that AMD will turn lower given its trendline of resistance
(see chart) but we are suggesting that readers wait for
a new decline under
support at $20.00 before initiating new positions. Our concern is that AMD is
building on a trendline of higher lows (see chart). Our target is the
$17.50-17.00 range.

Suggested Options:
We would wait for a decline under $20 before considering new plays. We prefer
the December puts.

It would appear that the bulls are still in control of AMZN. Thursday saw the
stock's rally fail under the $40 level but Friday did not produce any sort of
follow through lower. Short-term technicals may be at overbought levels but they
can always grow more overbought.
Right now we are expecting another rally
attempt at the $40 mark. The recent breakout and close over resistance at the
$39.00 level is negative for the bears and more conservative traders may want to
exit early to limit losses. If you're looking for a new entry point watch for
another failed rally under $40 or $39.80 or as an alternative wait for a decline
under short-term support at the rising 10-dma. Our target is the $35.00-34.00
range.

Suggested Options:
If
AMZN produces a new entry point we'd suggest the December or January puts.

Our bearish put play in CAH
is finally open. The stock has slowly withered lower
and broken support at $63.00 and again near $62.35. Driving CAH under the $62
level on Friday appears to have been an analyst downgrade. Volume on the decline
was strong, which is good news for the bears. Our suggested trigger to buy puts
was at $61.99. Now that the play is open our target is the $58.00-57.50 range.
Be prepared for a bounce on CAH's initial test of the $60 level.

Bulls are trying to make a comeback in COF. On Thursday the stock produced a
bearish failed rally under its 50-dma (and the $78 level). Unfortunately, Friday
failed to see any follow through lower. COF rebounded with a 1.4% gain. We're
growing concerned that COF is finding
too much support in the $76 region. We're
not suggesting new positions and more conservative traders may want to exit
early or tighten their stop toward the $79 or $78 levels. Our target is the
$75.10-75.00 range.

Suggested Options:
We are not suggesting new positions in COF at this time.

CTX erased four days of losses with Friday's 3.6% bounce. We may be witnessing a
short squeeze sparked by another decline in bond yields, which influence
mortgage rates. The latest data put short interest at almost 10% of its 117
million-share float. The breakout back above $50 and its
100-dma is definitely
bad news for the bears. Shares were somewhat oversold and due for a bounce but
more conservative traders may want to exit early and limit losses anyway. We're
keeping the play open since CTX appears to have additional resistance near $52
and its 50-dma. Aggressive traders could try and open positions on a failed
rally under $52 but we would suggest waiting for a new decline under $50.00 or
$49.75 before starting new plays. Our target is the $45.50-45.00 range.

Suggested
Options:
We are not suggesting new plays in CTX at this time.

Gold and
mining stocks gave back a lot of Thursday's big gains. Shares of FCX
under performed its peers with a 3.3% loss and gave back all of its gains from
Thursday. The decline on Friday helped produce a new sell signal on the daily
chart's MACD indicator. The decline back under $60 and $59 looks like a new
entry point to buy puts. However, the afternoon bounce on Friday suggests FCX
may make another attempt at a rebound. We would wait and watch for a failed
rally under $60.00 as a potential
entry point to start new plays. We have two
targets on FCX. Our conservative target is the $55.25-55.00 range. Our
aggressive target is the $51.00-50.00 range.

Suggested Options:
Traders can choose to open positions now or wait for a failed rally under
$60.00. We would use the December or January puts.

The broker-dealer stocks bounced on Friday after Thursday's rough decline.
Shares of LEH added 1.1% on above average volume. We remain bearish but the
short-term oversold bounce may not be over yet. We're not suggesting new plays
at this time but a failed rally near
$74 could be used as a new entry point. Our
target is the $70.25-70.00 range.

Suggested Options:
We're not suggesting new positions in LEH at this time.

We are running out of time with PTRY. The company is due to report earnings on
the morning of Thursday, November 16th. We do not want to hold over the report
so we're planning to exit on Wednesday at the closing bell. Given our time frame
we're adjusting the stop loss to $54.05 and we're not suggesting new positions.
We're also adjusting our target to $50.25.

Uh-oh! The oversold bounce in UFPI was just a little
too strong for our comfort
level on Friday. The stock bounced to a 3% gain and closed back above the $45
level. The move helped the daily chart's MACD indicator produce a new buy
signal. More conservative traders might actually want to consider an early exit
to avoid a loss given Friday's unexpected show of strength. We are adjusting our
stop loss to $46.13 and we're not suggesting new positions. Our target has been
the $41-40 range.

WGII was bouncing early Friday but then the rally suddenly surged
higher late
afternoon accompanied by a big wave of volume. The momentum stalled just over
the $57 level and the stock pulled back from its highs to close under the 10-dma
and 200-dma. We could not find any specific news to account for the afternoon
rise. The close back above the $56 level is a challenge for us since that puts
WGII back in its $56-58 trading range. We would expect the 50-dma near $58.50 to
act as resistance so we're lowering our stop loss to $58.51. However, given
the
unexpected strength and the big volume behind it more conservative traders may
want to consider an early exit to avoid further losses. Our target has been the
$51-50 range.

Suggested Options:
We're not suggesting new positions in WGII at this time.

Strangle Updates

(What is a strangle? It's when a trader buys an out-of-the-money (OTM) call
and an OTM put on the same stock. The strategy is neutral. You do not care what
direction the stock moves as long as the move is big enough to make your
investment profitable.)

---

Bear Stearns - BSC - cls: 147.16 chg: +2.75 stop: n/a

We
are down to our last five days with this BSC strangle play. The stock is
trending lower but Friday's bounce helped shares recoup a lot of Thursday's big
sell-off. November options expire after this Friday. Given our time frame we're
adjusting our target to breakeven at $4.00 (estimated cost). The options in our
play were the the November 155 call (BSC-KK) and the November 145 put (BSC-WI).

Entry point alert! CAT bounced back into our $59.50-60.50 suggested entry point
range to open new strangle plays.
The intraday chart suggests that CAT will
continue to bounce on Monday morning so we might get another (preferred) entry
at the $60.00 mark. The options in our strangle are the December $65 call
(CAT-LM) and the December $55 put (CAT-XK). Our estimated cost was about $0.75.
We want to exit if either options rises to $1.50.

Traders bought the dip in CEPH on Friday. The stock rebounded sharply from its
lows near $72.35. We are not suggesting new strangle plays in CEPH. The options
in our strangle are the December $75 call (CQE-LO)
and the December $65 put
(CQE-XM). Our estimated cost was $3.45. We plan to see if either option rises to
$4.90 or more.

We only have five days to see COP trade over $65 or under $55 to give this
strangle play a chance to exit at breakeven or better. November options expire
after Friday. We're not suggesting new positions. Our target is breakeven at
$1.15 but more conservative traders may want to try and exit at a fraction of
our estimated cost (50%, 75%, etc) to salvage their capital. Our suggested
options were the November $65 call (COP-KM) and the November $55 put (COP-WK).

The last several days have seen NILE's oversold bounce fail but shares are
struggling to fall through the $35.30 region. Overall the pattern looks
negative. We're not suggesting new positions at this time. Our estimated cost
was $2.40 and we're planning to sell if either side of our strangle rises to
$3.90. The options in our suggested strangle are the January $45 call (JWU-AI)
and the January $35 put (JWU-MG).

Dropped Calls

None

Dropped Puts

Alcon Inc.
- ACL - close: 100.12 chg: -2.23 stop: 110.01

Target achieved. Drug stocks continued to sell-off for their third day in a row
following the democrats win in congress on Tuesday. Shares of ACL plunged
another 2.2% and managed to hit an intraday low of $99.00. Our target was the
$100.10-100.00 range.

Dropped Strangles

None

Trader's Corner

More of "The Least You Should Know" about Options

by OI Staff

"Options don't begin trading until 9:45," the broker intoned. This was during
my newbie days as
an options trader, back when we called in our orders to
traditional brokers. The broker couldn't be convinced to try putting that order
through any earlier and I wouldn't profit from those options, either.

Fifteen minutes can be an eternity in an options trade. By the time that fifteen
minutes from 9:30-9:45 am EST had expired, the options that were profitable for
a nanosecond after the open had dropped in price, just as I had feared they
would. What could have been a nice
profit for a nanosecond that morning resulted
in a loss, my biggest loss up until that point.

The intention of this article is not to trash traditional brokers or any
brokers, but rather to continue a discussion begun last week about the least you
need to know if you're going to trade options. In addition to last week's
settlement-related topics, you also need to know when options trade. Although
the incident related above occurred years ago, questions still arrive from
subscribers, questioning when options trade.

Equity options, such as the ones I was trading back when I was a newbie and had
contacted that broker, trade during the same hours as the equities that underlie
those options. Generally, that means that equity options trade from 9:30 am to
4:00 pm EST, but an option doesn't open until the equity that underlies it does.
If a company releases important news before the open, news that creates an
imbalance that takes three minutes
after the open to resolve, its options won't
begin trading until then, either.

If you're trading options on an index, the timing proves a little different.
Index options trade from 9:30 am to 4:15 pm EST, but don't open until after
twenty percent of the stocks composing that index have opened. If traders are
waiting impatiently for an SPX option's new prices after the open, those prices
may not be available because the required number of component stocks might not
yet have
opened. The percentage can change from index to index, but the CBOE
notes that percentage as applying to most indices.

Armed with this knowledge, I might have been able to convince that broker to put
my order through that long-ago morning, rather than holding it until 9:45 EST as
he did. That might have prevented my first big loss. Understanding when options
trade might help you prevent one, too.

Today's Newsletter Notes: Market Wrap by Keene H. Little, Trader's Corner by
Linda Piazza, and all other plays and content by the Option Investor staff.

DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a
Broker/Dealer. Readers are advised that all information is issued
solely for informational purposes and is not to be construed as an
offer to sell or the solicitation of an offer to buy, nor is it to be
construed as a recommendation to buy, hold or sell (short or
otherwise) any security. All opinions, analyses and information
included herein are based on sources believed to be reliable and
written in good faith, but no representation or warranty of any kind,
expressed or implied, is made including but not limited to any
representation or warranty concerning accuracy, completeness,
correctness, timeliness or appropriateness. In addition, we do not
necessarily update such opinions, analysis or information. Owners,
employees and writers may have long or short positions in the
securities that are discussed.

Readers are urged to consult with their own independent financial
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